Copper prices fell to their lowest levels in almost three weeks on Tuesday amidst mounting fears of slowing Chinese growth, but futures rose slightly the next day following strong US economic data. On Wednesday, the Department of Commerce reported the US GDP grew by an annualized rate of 1.7% during the second quarter of the year, beating widespread expectations of 1% growth. The better-than-expected report drove the price of copper up by 4.5 cents to $3.0870 per pound for September contracts on the New York Mercantile Exchange.
The US is the world’s second largest consumer of copper, surpassed only by China. According to Mining.com, China currently accounts for 42%, or 20.5 million tons, of total global copper demand. Copper futures fell earlier this week because China’s economic slowdown could lessen demand for the metal, which is used in everything from consumer goods, such as appliances and electronic devices, to infrastructure elements, including power grids and rail transportation.
World’s Top Copper Consumer
China is well aware of the concerns surrounding the state of its economy. On Tuesday, President Xi Jinping reaffirmed that the nation’s economic growth for the year will not miss the previously forecasted target of 7.5%. And while China's latest Purchasing Managers' Index (PMI) rose slightly to 50.3 in July, beating analysts' expectations of contraction in the manufacturing sector (which is indicated by a reading below 50), the Wall Street Journal reports that the HSBC manufacturing Purchasing Managers' Index, which was under 50 in May and June, reached an 11-month low with a reading of 47.7.
Doubts of China’s ability to meet its overall 7.5% target are also prevalent, with the Financial Times citing the government’s credit tightening policy for the slowdown. And on a related note, Businessweek reports the copper smelting industry is one of the victims of last week’s production cuts as China’s government attempts to rein in overcapacity in manufacturing. Overproduction has led to price-cutting within industries, which in turn has adverse financial ramifications for manufacturers.
Copper’s Future in the US
While China’s economic and manufacturing woes are certainly of monumental concern to the copper industry, US construction may represent a small but bright spot on the horizon. Copper is widely used for electrical wire and plumbing in construction. Back in May, construction spending rose by 0.5% from April’s spending. The US Department of Commerce reported spending on private residential construction increased by 1.2% and public construction grew by 1.8%, while nonresidential project spending fell by 1.4%. In total, construction spending climbed to $874.9 billion in May, reflecting a 5.4% increase from $830.4 billion in the same month last year.
Then in June, the Department of Commerce found building permits for new residential construction declined 7.5% from May but still reflected a 16.1% gain from June 2012. Housing starts also fell from May, dropping by 9.9% but up 10.4% from last year. Additionally, the latest reading from the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) shows that builders strongly believe that demand for new, single-family homes will increase. The index indicates that builder confidence rose to 57 in July, reaching its highest level since January 2006.
Do you think the nascent US housing recovery, and its demand for copper, is an adequate buffer for a slowing Chinese economy? Use this list as a starting point for your own analysis.
Click on the image below to see sales data over time. Quarterly sales data sourced from Zacks Investment Research.
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1. Augusta Resource Corp (AZC, Earnings, Analysts, Financials): Engages in the acquisition, exploration, and development of natural mineral resource properties.
Market cap at $291.15M, most recent closing price at $2.02.
The company specializes in North American mines and is currently is in the middle of its Rosemont Copper project (located near Tuscon, AZ), which is expected to be completed in 2015. Once production commences, the Rosemont Copper project will be the third largest copper mine in the United States.
2. Southern Copper Corp. (SCCO, Earnings, Analysts, Financials): Engages in mining, smelting, and refining mineral properties in Peru, Mexico, and Chile.
Market cap at $22.04B, most recent closing price at $26.07.
In addition to copper, Southern Copper produces coal, lead, molybdenum, silver, and zinc.
3. Freeport-McMoRan Copper & Gold Inc. (FCX, Earnings, Analysts, Financials): Engages in the exploration, mining, and production of mineral resources.
Market cap at $27.71B, most recent closing price at $28.28.
The company produces cobalt, gold, molybdenum, oil, and gas as well as copper.
(List compiled by Mary-Lynn Cesar.)
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Dig Deeper: Access Company Snapshots, Charts, FilingsAugusta Resource Corp (AZC, Chart, Download SEC Filings) Southern Copper Corp. (SCCO, Chart, Download SEC Filings) Freeport-McMoRan Copper & Gold Inc. (FCX, Chart, Download SEC Filings)
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